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Financial Library

Check 21 What it is, and what it means for you

Ready or not, your checking account is about to change. Here’s what to expect.

Let’s say you write a check at your local department store. The department store sends your check to their ABC Financial Institution, hundreds of miles away. ABC clears it through the Federal Reserve Bank and sends it back to your bank/credit union, hundreds of miles away.

Does this system sound complicated and time-consuming? That’s because it is! It also leaves your little paper check vulnerable to national disruptions caused by terrorism or natural disaster. But change is just around the corner.

Beginning on October 28, 2004, a new law called Check 21 will go into effect. Check 21 allows paper checks to be replaced by “substitute” checks created from an electronic image. The original paper check is then taken out of circulation.

How will Check 21 be better for you?

  • Detects Fraud Faster – Since check clearing is faster, fraud can be detected and investigated sooner which brings about quicker resolution.
  • More Secure Check Information – Checks no longer have to be physically transported via truck, train, or plane.

Check 21 is designed to streamline the way checks are processed, as well as protecting our financial system from unexpected disasters. It’s important to remember that “float” time will be greatly reduced. We recommend that you have funds available to cover the amount of your checks. Please feel free to contact us if you have any questions.

Check 21 Frequently Asked Questions

Q. What is Check 21?

A. Check 21 is the shortened name for the Check Clearing for the 21st Century Act that will go into effect at the end of October 2004. It requires all financial institutions to accept substitute checks as the legal equivalent of an original check.

Q. What is a substitute check?

A. A substitute check is a reproduction or print-out of an original check from a digital image. If you currently receive canceled checks in your statement, you may receive substitute checks in place of your original check. You may also see substitute check images on your statement or online if the original check wasn’t sent to your credit union.

Q. Why was Check 21 passed?

A. In essence, Check 21 brings the check-payment process into the 21st century. It allows financial institutions to replace the original paper check with an electronic version that can be processed faster and at a cost savings – rather than having to transport, manually process and store the paper check. Plus, it helps reduce fraud by going through fewer hands. And if fraud occurs, it can be caught faster, which leads to faster recovery.

Q. Will Check 21 cost me anything?

A. No, Check 21 is a law, and it costs nothing to consumers.

Q. When does Check 21 go into effect?

A. Check 21 became a law on October 28, 2003, but has an implementation date of October 28, 2004. This gives financial institutions a full year to comply with the law.

Q. Is this a similar process when retailers give me my check back after I’ve made a purchase?

A. Yes. If a retailer gives back your check at the store, your check has been converted to an ACH or Automated Clearing House transaction. ACH is a system that electronically transfers funds. Retailers have been using this system for several years because it helps them to streamline their payment processing and clear funds faster. On your statement you would see this transaction in a separate area than the rest of your checks.

Q. How long after I write a check will it be cleared from my account?

A. Once Check 21 is implemented, there’s no telling how long it will take for your check to be cleared. Depending on the financial institutions and retailers involved, your check could be cleared almost instantly or in several days.

Q. What can I do to better manage my account and finances in light of Check 21?

A. If you’re used to having a few days between the day you write your check and the day the funds clear your account, be aware that time could be reduced. (If you currently are without overdraft protection or a line of credit, contact the Credit Union.) Otherwise, balance your checkbook and maintain your checking records as in the past. If you have any questions about your accounts, just ask us. We’d be more than happy to help you!

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